By Chen Shiyin (China Daily)

    BEIJING, Jan. 4 -- Asian bank, retail and phone company shares may outperform benchmark indexes this year because of increased spending by consumers and companies.

    "The next stage of the Asian economic cycle will be domestic expansion," said Michael Koh of JF Asset Management Ltd, which invests US$47 billion in Asia. "Rising consumer spending will lead the next rally," he said.

    Sumitomo Mitsui Financial Group Inc, Giordano International Ltd and Far EasTone Telecommunications Co are among the shares forecast by investors to outperform the market. Stocks that benefit from higher consumption, prices and property values may lift indexes in Japan, Taiwan, Thailand and Hong Kong, among the world's laggards in 2004, said strategists such as Markus Rosgen, Asia-Pacific equity strategist at Citigroup Inc in Hong Kong.

    The December 26 tsunami disaster, which killed more than 150,000 people in Indonesia, Sri Lanka, Thailand and eight other countries, isn't likely to cause stocks to drop during the year, investors said. "The impact will be minimal" in stock and economic terms, said Khiem Do, who oversees US$3.1 billion in Asia at Baring Asset Management in Hong Kong.

    Borrowing by consumers buying cars and homes and by companies expanding factories helped make bank stocks Asia's top performers in 2004. A measure of banks, brokerages, insurers and consumer lenders in Morgan Stanley Capital International Inc's Asia-Pacific Index climbed 24 per cent, beating a 16 per cent gain in the main benchmark.

    Sumitomo Mitsui shares rose 18 per cent in the last quarter after the Tokyo-based bank purged bad loans and President Yoshifumi Nishikawa announced plans to strengthen its consumer-finance businesses. For the year, the stock rose 30 per cent.

    Giordano rose 35 per cent in 2004 as the Hong Kong-based clothing chain almost tripled first-half profit. In Taiwan, Far EasTone advanced 67 per cent as the mobile phone operator's purchase of a smaller rival buoyed sales.

    Investors should favour banks, utilities, phone companies and consumer stocks because stronger currencies and slower global demand are hurting exporters, Citigroup's Rosgen said.

    Forecasts for per-share earnings, cash flow and dividend growth "are all stronger in the domestic sectors than in the export sector," Rosgen wrote in a December 14 report.

    South Korea's won led Asian currency gains in 2004, rising 15 per cent against the dollar, according to data compiled by Bloomberg. Japan's yen rose 4.5 per cent and Singapore's dollar gained 4.2 per cent.

    Stronger currencies make imports cheaper for consumers while hurting exporters such as Samsung Electronics Co. The South Korean chipmaker's parent forecasts group sales growth will slow to 3 per cent in 2005 from 12 per cent last year because of the stronger won and high oil prices.

    Concerns about exports held back Asian benchmarks in 2004. Indexes of stocks in the Chinese mainland, Thailand, Taiwan, Hong Kong, Japan and Malaysia were in the bottom 20 among 61 national benchmarks ranked by Bloomberg.

    In 2005, spending by consumers and companies may help compensate for slower exports. Asia's economy outside Japan will expand 6.3 per cent this year, the Asian Development Bank forecast on December 7. The forecast surpasses the International Monetary Fund's October estimate of 4.3 per cent global growth.

    MSCI's Asia-Pacific benchmark rose last week even as governments struggled with the aftermath of the tsunami disaster. Thailand, where 2,400 people died in tourist resorts, cut its 2005 economic-growth forecast by 0.3 of a percentage point to 5.7 per cent.

    Giordano, among Asia's biggest casual-wear chains, may gain as consumers spend more. Its Hong Kong stores benefited as Chinese mainland tourists buoyed the city's retail sales for a 15th month in October. Business also grew elsewhere among its 1,450 outlets, which span the Chinese mainland, Taiwan, Singapore and Japan.

    Far EasTone, Taiwan's second-biggest mobile-phone operator, is luring investors with rising profit and dividends that equal 3.3 per cent of the company's share price. The benchmark Taiex yields 2.9 per cent.

    Real-estate values also point to stronger economies.

    Apartment prices in Hong Kong jumped 35 per cent in 2004 and may rise 20 per cent in 2005, Kenneth Tsang, head of Greater China research at consultant Jones Lang LaSalle Inc, said on December 14. Shares of Sun Hung Kai Properties Ltd, the city's largest developer by market value, rose 21 per cent last year.

    Taiwan's property prices rose about 10 per cent in 2004, Sinyi Realty Co, the island's largest real-estate broker, said in a December 28 report. Singapore's property prices ended a four-year slide, rising 0.1 per cent in the first three quarters.

    "You should be buying Asian equities aggressively because the big picture is very, very strong for the outlook for Asian assets," Adrian Mowat, Hong Kong-based regional strategist at JPMorgan Chase & Co, said.

    Mowat favours Taiwan as "the best reflation story in Asia" because low unemployment and rising consumer confidence have made the island's domestic economy "much stronger than current perceptions" among investors. Regionally, he also recommends shares of banks, retailers and building-materials companies.

    Suppliers of construction materials may gain as the region recovers from the tsunamis. The United States and 43 other nations have pledged US$2 billion in aid for tsunami rescue work and reconstruction of devastated areas.

    The disaster may "spur governments to rebuild and reinvest," fueling growth, JF Asset's Koh said. Shares of Siam Cement Pcl, Thailand's biggest industrial group, and Indonesian cement maker PT Semen Gresik rose last week.

    Property prices in Japan are also starting to rise, rebounding from a slump of as much as 80 per cent since 1990.

    Japan's economy, Asia's largest, is poised for a fourth year of expansion, according to 19 economists surveyed by Bloomberg. Growth will probably reach 1.3 per cent in the year from April 1, compared with a projected 2 per cent this fiscal year, the economists' median estimate suggested.

    Corporate spending is forecast to boost Japan's economy and offset an expected slowdown in consumer purchases caused by higher pension contributions and planned tax increases.

    Manufacturers such as Canon Inc plan to raise investment 23 per cent in the year to March 31, the biggest jump in 16 years, the Bank of Japan's quarterly Tankan survey of business confidence showed on December 15.

    (Source: China Daily)